Earnings Call Transcript - OUST Q1 2023

Operator, Operator

Good afternoon and welcome everyone to Ouster’s First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After today's presentation and remarks, there will be an opportunity to ask questions. The call today is being recorded and a replay of the call will be available on the Ouster Investor Relations website an hour after the completion of this call. I’d now like to turn the conference over to Sarah Ewing, Director of Investor Relations. Please go ahead.

Sarah Ewing, Director of Investor Relations

Thank you and good afternoon, everyone. Thank you for joining us for our 2023 first quarter earnings call. I am joined today by Ouster’s Chief Executive Officer, Angus Pacala; and Chief Financial Officer, Mark Weinswig. Before we begin the prepared remarks, we would like to remind you that earlier today Ouster issued a press release announcing its first quarter 2023 results. The company also published an investor presentation, which is available on the Investor Relations section of ouster.com. I’d also like to remind everyone that during the course of this conference call, Ouster’s management will discuss certain forward-looking information regarding the company, including forecasts, targets, statements from its press release, potential future customer orders, and shipments, near and long-term revenue opportunities, strategic customer agreements, market share trends, anticipated synergies from the company’s merger with Velodyne, ability to recognize the benefits of cost savings initiatives, future products, anticipated benefits and applications of new product releases, technological advancements and commercial paths, potential future market opportunities, customer traction and the company’s business outlook and first quarter 2023 financial guidance and trajectory are forward-looking statements that are intended to be covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. There is no guarantee that such plans, estimates, and expectations will be achieved. Thus, while these statements represent management’s expected future results and performance, Ouster’s actual results are subject to several risks and uncertainties that may cause actual results to differ materially from current expectations that we may share with you today. In addition to any risks highlighted during this call, you should carefully consider other important risk factors and disclosures that may affect Ouster’s future results as described in its most recent annual report on Form 10-K and other reports that the company files or furnishes with the SEC. Except as required by law, rule, or regulation, the company undertakes no obligation to update any of these forward-looking statements for any reason after the date of this call. Information discussed on this call concerning the company’s industry competitive position and markets in which it operates is based on information from independent industry and research organizations, other third-party sources and management estimates, which are derived from publicly available information released by independent industry analysts and other third-party sources, as well as data from the company’s internal research and are based on reasonable assumptions and computations made upon reviewing such data and its experience in and knowledge of such industry and markets. By definition, assumptions are subject to uncertainty and risks, which could cause results to differ materially from those expressed in the estimates. During this call, we will discuss certain non-GAAP financial measures, which exclude the effects of events and transactions we consider to be outside of our operations as outlined in today’s press release. These non-GAAP financial measures should be considered as a supplement to and not a substitute for measures prepared in accordance with GAAP. For a reconciliation of non-GAAP financial measures discussed during this call to the most recently comparable GAAP measures, please refer to today’s press release. I’d now like to turn the call over to Angus.

Angus Pacala, CEO

Good afternoon everyone and thank you for joining us today. Before we report on our first quarter 2023 results and business update, I want to share a few thoughts on the state of the lidar industry and Ouster’s strategic positioning. It's clear that market perception of the lidar industry has taken a sharp turn since a number of companies entered the public markets through SPACs. Companies and investors alike have realized that products can be challenging to manufacture and timelines continue to be pushed out. This, coupled with a challenging macroeconomic environment has led to a sharp market correction. Ouster is not immune to these market dynamics, and I share the pain our investors feel. As CEO and co-founder and a large shareholder myself, I do not take this lightly. But I also want to stress that I am immensely confident in the Ouster team, our strategic approach within this competitive space and the opportunity we see to make lidar ubiquitous across a myriad of industries. Ouster is in a strong financial and commercial position with significant cash reserves, accelerating revenues and bookings and an incredible product roadmap spanning multiple generations of both scanning and solid-state digital lidar sensors as well as new innovative software products to serve the vast opportunities for lidar technology. Ouster is more capable and competitive than ever. Following our merger with Velodyne, we kicked off a large-scale effort to realign Ouster’s operating model to build a strong business that is both competitive and resilient and puts us on the path to profitability. While we're working through the short-term impacts associated with the integration and our operational realignment, the incredible demand for our industry-leading REV7 sensors gives us confidence that we're gearing up for a strong second half of the year and are well positioned to capitalize on the growth opportunity associated with our differentiated multi-market approach. Ouster achieved strong growth in the first quarter, delivering over $17 million in revenue, including $6.4 million in revenues from Velodyne and booking $33 million in business from new and existing customers. Further, we shipped over 3,000 Ouster OS and Velodyne lidar sensors to customers worldwide. Our new software solutions business for Ouster Gemini and BlueCity drove expanded deals and new customer adoption within the smart infrastructure vertical. Over the course of the first quarter, our team has been intently focused on realigning our cost structure, streamlining manufacturing and delivering on our product roadmap in order to build a competitive go-forward enterprise. We've identified four strategic priorities for the business in 2023 that we plan to update on each quarter: one, drive new business through targeted sales approach to deliver near-term growth. Two, execute on the Digital lidar roadmap for OS and DF-Series to expand our serviceable market. Three, develop a robust software ecosystem to accelerate lidar adoption, and four, build a financially strong business to support our long-term growth and deliver value to shareholders. We expanded sales of our new REV7 sensors powered by our next-generation L3 chip, shipping sensors to over 110 customers in the first quarter of 2023, including warehouse automation customers, like Vecna Robotics, Cyngn and Paleo as well as a number of large industrial trucking, bus and mining equipment OEMs. I am also excited to report that earlier today, we announced that Ouster was awarded a production win to be the exclusive supplier of long-range lidar for all-electric IONIQ 5-based robotaxis. The serial production agreement will see Ouster supply Motional with our VLS-128 sensors through 2026. Motional is a leading AV company with large-scale deployments and strong commercial partnerships, and I'm thrilled to partner with them. I see digital lidar as the end-state technology for lidar, an approach that continues to be reinforced by broad commercial traction and direct customer feedback. By reducing the components of an analog system and integrating that complexity onto a powerful custom silicon chip that tracks with Moore's Law, we can continue to drive significant performance gains with each chip tape-out without redesigning our products from the ground up. This also allows us to leverage economies of scale across our digital products and to quickly scale up manufacturing given our simplified architecture, while simultaneously marching down the cost curve faster than our analog peers. Our REV7 OS sensor suite powered by the L3 chip improved our overall competitiveness across markets and doubled our collective serviceable obtainable market or SOM, cementing our position as an industry leader for high-performance lidar. With REV7 sales, production and shipments now ramping, our engineering team is working on the next-generation custom silicon to power our OS sensors, the L4 chip, which is expected to tape out later this year. This is the power of digital lidar, continuous improvements that support new and existing customers across ever-expanding use cases and end markets. I look forward to providing the market with more information on our OS sensor roadmap as we move through the rest of the year. We are also on track to deliver early B samples of our solid-state digital flash or DF sensors, which are expected to be sampled by automotive customers for the first time in the second half of this year. These early B samples represent the final form factor for our DF sensors for high-volume series production automotive programs. This is a critical milestone on our automotive roadmap and in our commercial engagements with automakers, including our strategic OEM partner. We will mature our B samples over time by replacing our current silicon chip, Godzilla, with our next-generation silicon, the Chronos chip. With Godzilla, our DF sensor is already operational today, producing rich point cloud data at long range and high resolution. The state-of-the-art Chronos chip will take our DF sensors to the next level, targeting improved performance across the board, including resolution, power efficiency, memory, dynamic range and detection accuracy. As the backbone of Ouster’s DF Series, the Chronos chip is designed to meet ASIL-B automotive functional safety requirements according to ISO 26262 and AEC-Q100 automotive qualifications. We intend to tape out the Chronos chip later this year and to integrate the chip into the first sample units early next year. I cannot wait to demonstrate the performance, cost and flexibility advantage of the DF product line in the second half of this year. Turning to our new solutions business built on our software offerings, Ouster Gemini and BlueCity, we're seeing a fantastic customer response to the combination of our digital lidar hardware, including the OSDome, combined with our new software solutions. As part of our plans to unify our software solutions for the smart infrastructure vertical, BlueCity will be underpinned by Ouster Gemini to add OS sensor compatibility, more features and better overall performance to BlueCity customers. We currently have hundreds of active smart infrastructure deployments around the world for intelligent transportation systems, crowd and retail analytics and security monitoring. Each of these deployments presents an opportunity for our software, and we are also partnering with new system integrators to accelerate the deployment of our products into these markets. Ouster lidar will be included in six of the smart grant program deployments that we were awarded earlier this year as part of the funding provided within the US infrastructure bill. With millions of signalized intersections around the world and the global market for end system security cameras already estimated at $32 billion, there is a multibillion dollar market opportunity for lidar and smart infrastructure that Ouster is poised to capture. Capturing a large and growing market for lidar requires more than high-performance competitive products. It requires a financially strong business that can support our long-term growth and deliver value to stockholders. Starting with immediate initiatives to support the ongoing integration, we are now targeting annualized merger cost synergies of $80 million to $85 million. These cost savings, including already $50 million on an annualized basis in the first quarter of 2023, combined with strong bookings and rebounded quarter-on-quarter average selling prices, position us well on a go-forward basis. We continue to identify new synergies and look forward to providing the market with a thoughtful and credible business model, following integration later this year. As part of Ouster’s outsourced manufacturing strategy, we completed the transition of the VLP-16 sensors to Fabrinet in Thailand in the first quarter. We're also on track to fully transition the VLP-32 by the end of the second quarter and VLS-128 by the end of this year. In addition to our ongoing efforts to strengthen the overall business and catalyze new growth, Ouster is also taking steps to enforce its intellectual property and ensure fair competition in the market. In April, we filed the patent infringement complaint with the US International Trade Commission against the Chinese lidar maker, Hesai. We also filed the patent infringement complaint against Hesai in the US District Court for the District of Delaware, seeking an injunction and monetary damages. Hesai had multiple patent infringement claims filed against it, while Ouster holds one of the largest patent families in the lidar industry and has successfully enforced and defended its patent portfolio previously. We intend to vigorously enforce our patents until the infringing products are barred. And with that, I'll turn it over to our CFO, Mark Weinswig, to provide more context on our financial results for the first quarter and outlook for the second quarter as well as provide further details on our near-term integration progress.

Mark Weinswig, CFO

Thank you, Angus, and good afternoon, everyone. We made significant progress this quarter towards completing our merger integration efforts and realigning Ouster's business model with our expected growth trajectory. Further, we saw increasing customer demand for our industry-leading REV7 sensors, driving strong bookings in the first quarter and a rebound in average selling prices over the fourth quarter of 2022. Starting off with our first quarter 2023 results, we recognized a record $17.2 million in revenue, which includes $6.4 million in revenue from Velodyne product sales since the closing of the merger on February 10, 2023. Industrial and robotics customers drove the majority of our revenue in the first quarter, accounting for approximately 60% of our sales, closely followed by sales in the automotive vertical. This includes multiple large shipments for warehouse automation and material handling vehicles, autonomous shuttles and ground and aerial mapping applications. To provide additional color, we plan to report quarterly bookings, which we define as binding contract orders received from customers during the period. In the first quarter, we booked $33 million in business with new and existing customers. This represents a book-to-bill ratio of approximately 1.9% in the first quarter of 2023. As you may recall, we booked $70 million of business in fiscal 2022. This commercial traction is driven by increased demand for our REV7 sensors, which more than doubles our serviceable market by opening up new opportunities and increases our overall competitiveness. We shipped over 3,000 sensors in the first quarter, a 95% increase over the first quarter of 2022, inclusive of Velodyne product shipments after the merger. We also shipped our new REV7 sensors to over 110 customers in the first quarter of 2023, up from 29 customers in the fourth quarter of 2022. We believe Ouster is in a strong position as we move through 2023 with the most performant family of sensors on the market with over 850 customers across over 50 countries and a strong balance sheet with $257 million in cash, cash equivalents and short-term investments as of March 31, 2023. Ouster saw lower gross margins in the first quarter of 2023, recording a negative 2% gross margin. These lower gross margin levels incorporated certain non-recurring or unusual items, including excess and obsolete expenses and purchase commitment losses of $3.6 million associated with the consolidation of product lines and transitioning manufacturing from the REV6 to REV7 OS sensors. Ouster's non-GAAP gross margins were 25% in the first quarter of 2023. Given the extraordinary nature of integration-related activities over the next few quarters, we plan to break out merger integration product transition and other non-recurring expenses in an effort to provide a clear delineation between non-recurring or unusual impacts and the fundamentals of the business to help baseline future operating performance. Despite these near-term impacts, we were bolstered by increasing demand and higher ASPs for our REV7 sensors in the first quarter of 2023, leading to a quarter-on-quarter rebound in Ouster's ASPs from approximately $3,600 per sensor in the fourth quarter of 2022 to approximately $5,700 in the first quarter of 2023. The significant improvement in our ASPs over the prior quarter illustrates the value of our next-generation sensor and the ability to demand a premium price in the market. On our goal to expand long-term gross margins, we made significant headway in our efforts to transition all Velodyne sensor lines to an outsourced manufacturer in Thailand. We completed the full transition of the VLP sensor in the first quarter. We remain on track to transition the VLP-32 by the end of the second quarter of 2023 and the VLS-128 by the end of the year. This outsourced manufacturing strategy is critical to help us meet customer demand and reduce costs. The combination of our accelerated timeline to outsource the manufacturing of all Velodyne products as well as the increasing demand for our high-performance REV7 sensors provides us with a roadmap for improved gross margins in the second half of 2023. Turning to our merger integration activities. We have taken significant steps to achieve the cost synergies necessary to build a business that aligns our cost structure with the lidar industry's estimated growth trajectory. Exiting the first quarter, we reduced our annual run rate costs by over $50 million baseline against the stand-alone cost structures of the two companies as of the third quarter of 2022. These implemented cost reductions primarily focus on duplicative R&D programs, general and administrative activities and the creation of a joint operations team. Merger integration activities included an announced reduction in force that impacted approximately 190 employees as of the end of the first quarter and resulted in a one-time cash expense of approximately $10 million. We are now on track to exceed our previously announced cost synergies target of $75 million, increasing our estimate to between $80 million and $85 million in annualized cost savings exiting the fourth quarter of 2023. We expect these efforts to require an additional $3 million in one-time cash expenses. Our success in realizing these cost savings gives us confidence that we can make further improvements to our cost structure. By our third quarter earnings call, once the key integration activities are completed, we expect to present a long-term business plan for the company as well as greater detail on our combined company cost structure on a go-forward basis. We are working to position Ouster for long-term success and are taking the necessary steps to grow top-line revenues while also containing costs. We made significant progress in the first quarter, and we'll continue to update the market on future activities as we work through the integration and develop our long-term plan. Now turning to guidance. For the second quarter of 2023, Ouster is targeting between $18 million and $20 million in revenue, which will include sales of all combined company products for the entire period. Similar to the first quarter, we expect the second quarter of 2023 to experience continued margin pressure due to the merger integration work, ongoing efforts to outsource manufacturing for Velodyne lidar sensors as well as the manufacturing transition from the REV6 OS sensors. That said, as we continue to make progress on these activities, we do expect our GAAP gross margins and our non-GAAP gross margins to start to converge in the second half of the year. Ultimately, our financial results need to speak for themselves. We believe we have the right technology and diversified market approach but must put in place a business model that is both resilient and competitive and puts us on a path towards profitability. We remain confident in our long-term outlook. And with that, I would like to turn the call back over to Angus.

Angus Pacala, CEO

Thanks, Mark. Just about every automotive and industrial OEM, autonomy upstart and transportation expert agrees that lidar is critical for the future of automation and smart technologies. Ouster has an incredible team, a diverse set of over 850 customers and an exciting product roadmap that is solidifying our position as a long-term market leader. Our scale, first-mover status, cash position, and especially our technology gives us significant competitive advantage in this maturing industry. And with that, I'd like to open it for Q&A.

Kevin Cassidy, Analyst

Thank you very much for taking my questions, congratulations on the great quarter. Just looking at the outlook. Can you say in your June revenue guidance, how much of that is on backlog already? Are you going to give that much detail?

Mark Weinswig, CFO

We appreciate the question. We have not been giving backlog as a metric. The metric that I think that we're really excited about for this quarter is the strong bookings levels. We hit $33 million in bookings, the highest level ever for Ouster. And the great thing about that bookings is that it included products from VLP-16, VLP-32, VLS-128 and the OS series. It was a very well-balanced quarter and something that we're very happy with.

Kevin Cassidy, Analyst

Okay, I understand. And then when you're talking about the second half of the year to be sampling these samples. How many customers do you think you'd be sampling? I'm very impressed over 100 customers testing the REV7. But when you get to automotive, I guess how many are you willing to work with on the first sample?

Angus Pacala, CEO

Yes, that's a great question, Kevin. First, I want to emphasize that the REV7 customer base is no longer just a sample group; it effectively drove the majority of our OS sensor revenue in the last quarter. Many of these customers are at a production scale and have quickly recognized the advantages of the REV7 sensor. This reflects a mature dynamic with hundreds of customers—specifically 110 in Q1 alone. On the other hand, the DF B-samples represent a different development phase, but it's a significant advancement for our automotive business. This marks the first time we're providing a fully developed final form factor device with a high-performance point cloud that meets customer specifications. These are no longer prototypes, and we can easily sample them to a large number of automakers—over 30 major OEMs and Tier 1 partners—that are interested. We are already in touch with a considerable portion of the industry, so we don't foresee any issues in meeting their needs, as we're at a mature product stage now that allows customers to assess this offering without much guidance.

Operator, Operator

Our next question comes from the line of Tristan Gerra from Baird. Please go ahead.

Tristan Gerra, Analyst

Hi, guys. Good afternoon. I have OpEx at around 170 million for this year. Is that in the ballpark of your expectation? And at the same time, how should I look at this against your cash position in terms of when you need to raise cash as this could be a good indication of the cash burn for this year and next year?

Mark Weinswig, CFO

Yes. Our top priority right now is completing the merger integration, which is progressing ahead of schedule. We have realized $50 million in synergies compared to our third quarter as a combined company last year. We are now forecasting total synergies between $80 million and $85 million. By the third-quarter earnings call, we expect that the key integration activities will be completed and we will present a long-term business plan. We are balancing short-term financial performance with the significant long-term opportunities in the lidar industry, and we are continuing to invest in key development projects, which are yielding great results. The REV7 sensor has been a major success for us, and we are very pleased with it. We may need to raise additional capital in the future depending on our investment levels and growth pace, ensuring we continue to invest in new opportunities. However, we are focused on utilizing our cash efficiently to operate our organization effectively.

Tristan Gerra, Analyst

Okay. Great. That's very useful. And then for my second question, how should I look at the quarterly revenue run rate, I understand that you're not guiding beyond Q2. My question would be that if the Velodyne revenue are declining, how much of a headwind could that be on your future quarters before you ramp your own design wins in more materially?

Mark Weinswig, CFO

We are very optimistic about the integration of the two companies' product lines. I often discuss the immediate and long-term potential of Ouster's digital products, which I stand firmly behind. Velodyne has had a substantial business and continues to maintain a strong presence with mature performance products that we are currently transitioning to Fabrinet to create a more favorable margin structure. We plan to keep supporting these products as they perform exceptionally well for certain customers. A prime example is Motional, which exclusively uses the VLS-128 as a long-range lidar, showcasing the positive outcomes we anticipated from this merger. Overall, we are confident in the ongoing value that Velodyne products provide while we invest in our long-term digital strategy and see the benefits from releases like the REV7.

Tristan Gerra, Analyst

Great. Thank you very much.

Operator, Operator

Our next question comes from the line of Brian Dobson from Chardan Capital Markets. Please go ahead.

Brian Dobson, Analyst

Hi, thanks very much for taking my question. So, as you look out through the industrial landscape, I guess what gives you confidence about potential increase in orders over the next two years? And are you seeing a broader stronger pace of adoption among industrial clients?

Angus Pacala, CEO

Thank you for the question. There are several encouraging developments regarding our industrial business. Firstly, we noted that 60% of our orders in the last quarter were from industrial and robotics customers. This reflects a focused strategy we implemented halfway through last year. We view these customers as reliable partners who can innovate and scale this technology effectively in production, contributing to a strong margin business with a favorable average selling price structure for the long term. Additionally, our bookings for the last quarter reached $33 million, which we see as a strong sign of the direction this business is heading and the momentum we are generating for the future. This follows the $70 million in bookings we reported for 2022 as an independent company. We are gaining increased visibility into the future as our bookings continue to rise, and the book-to-bill ratio is becoming a significant metric for us.

Brian Dobson, Analyst

Excellent. When we met at CES earlier this year, you showcased some very impressive crosswalk technology, are you seeing interest in that type of technology from cities or municipalities for their pedestrian safety initiatives?

Angus Pacala, CEO

Absolutely. What we demonstrated was the Gemini smart infrastructure software platform that can trigger signals like crosswalks or traffic lights. This has now expanded into a broader portfolio with the merger of Velodyne and the incorporation of the BlueCity offering, enhancing our overall traffic system capabilities. There are many positive factors driving this business. We have hundreds of deployments of this technology in North America alone with BlueCity and Gemini. The customer response to the release of Gemini and BlueCity has been fantastic. Additionally, we have been included in the first round of smart grants from the US infrastructure bill, and we are nominated in six of those initial smart grant programs, which highlights other positive factors supporting this business. I have high expectations and excitement about this industry, which I believe will become a significant part of our business in the long term.

Brian Dobson, Analyst

Excellent. Thank you very much.

Operator, Operator

Our next question comes from the line of Kevin Garrigan from WestPark Capital. Please go ahead.

Kevin Garrigan, Analyst

Yeah. Hey, good afternoon, guys. And thanks for letting me ask the question. On the Gemini platform, can you just remind us of the revenue opportunity there and when revenue generation may really start to ramp?

Angus Pacala, CEO

Yeah. On the Gemini program, so we released the Gemini software platform in Q1 at CES, and we're already seeing a significant number of deals where we are packaging Gemini alongside what would have been a traditional hardware sale for us. And what Gemini is really bringing to the table is now the complete solution that we can offer as a one-stop shop to a customer. And there's really no other company in the smart infrastructure LiDAR space that can offer such a rich combination of best-in-class hardware and best-in-class software in one complete solution. Historically, there have been LiDAR suppliers, and there have been software integrators. And we've now combined those under one roof, and we've made something best-in-class from a product perspective, but also from a customer interaction perspective just dealing with one entity. So as Gemini becomes a more meaningful part of the overall business, my hope is that we start to break that out and show the benefits it's bringing in terms of new business, improved margins and whatnot. And then we'll do that when it becomes a meaningful part.

Kevin Garrigan, Analyst

Okay. Got it. Thank you for that. And then on the macroeconomic front, you've talked about macroeconomic pressures over the past couple of quarters. Are you seeing kind of any improvements or any worsening during the quarter compared to last quarter or even six months ago? And how negotiations been going so far with customers?

Mark Weinswig, CFO

I believe that the first quarter results, with revenue and average selling prices rebounding alongside record bookings of $33 million, showcase robust growth for us. It is challenging to isolate any macroeconomic challenges we've faced, as we've been in this environment for over a year, and it has already influenced our results and how our customers are advancing their own technology. From my viewpoint, we are now operating in a new normal and anticipate consistently strong results despite any challenges some of our customers may encounter. I have previously emphasized the importance of diversification across our industries for Ouster's ongoing success. We've observed a decline in some of our automotive customers, particularly in robotaxis and robotrucking, which have been more adversely affected in this climate. However, we are witnessing increased demand from our industrial and robotics customers. Our investments in the smart infrastructure sector are beginning to pay off, and we are gaining significant traction there. This approach allows us to address gaps in a manner that other companies that lack diversification cannot.

Kevin Garrigan, Analyst

Okay. Got it. That makes sense. Okay. Perfect. Thanks, guys.

Operator, Operator

Our next question comes from the line of Richard Shannon from Craig-Hallum Capital Group. Please go ahead.

Richard Shannon, Analyst

Mark, on the last conference call, I asked you about a breakeven model. Any chance you're going to offer something today, or do we got to wait a couple of quarters?

Mark Weinswig, CFO

I appreciate the question, Richard. As we talked about before in the call, our main focus right now is really just completing the integration activities. I can tell you that the path to profitability is probably the subject that we talk about the most of this organization and what we talk about every day in our meetings. We've taken significant steps to put us on that path and start to press on that path. We made a significant headcount reduction in February. We've consolidated a lot of our general administrative and operations activities. We started the transfer of all of the Velodyne products over to Thailand and actually expedited those. So those are some of the key steps that we've taken, the elimination of duplicative R&D. But until we get through the, I would say, this next phase of the integration activities, it's probably a little bit too early to walk through what the entire plan of profitability is going to look like.

Richard Shannon, Analyst

Okay. Fair enough. I'll ask you in a couple of quarters, then Mark. Thanks for that. Second question for me is on the strong bookings you had in the first quarter. I guess, when we talked about your REV7 sensor last quarter, it sounded they are quite excited about that. I want to get a sense of how much of the bookings have been related to REV7; if you can't quantify, can you suggest when we might see a breakeven, or when we’re seeing more than half of bookings come from REV7-based products?

Mark Weinswig, CFO

Yeah. Well, I'm happy to say that actually in Q1, the majority of our bookings and revenue for OS sensor products came from REV7, just highlighting how ready customers were to adopt this premium capability and new performance from the lineup. And again, the issue here and with the general lidar industry is not an issue with demand for great products. The issue is always about delivery of those great products at a positive margin to customers. And that's something that Ouster has proven time and again. And now we've come through a Q4 where we hadn't shipped and gotten to full production with the REV7 into Q1 where we quickly ramped to over half of the overall OS sensor business being driven by these REV7s, and the complete rebounding in our ASPs to go with it, again, driven by the premium capability performance and pricing that the REV7s are commanding. So this is really positive for the business. And it's a reason why we know we should be continuing to invest into the digital roadmap, because we see further opportunity to invest in REV8, REV9. I mentioned the L4 chip on the call, and those that we expect to open up new opportunities, new pricing and new customer sets as we release those.

Richard Shannon, Analyst

And if I might extend this question, Angus, if you look towards the end of the year, what percentage of your bookings or revenues do you think will be REV7-based?

Angus Pacala, CEO

Well, if we're talking OS sensors, I expect it to be the vast majority of the sensors that we book will be REV7. In terms of the overall mix, that's something that I'm not in a position to estimate at this point. We leave it up to the customer base to decide ultimately, which sensor, whether it's the Velodyne legacy sensor or an OS sensor is the right one for them.

Richard Shannon, Analyst

Okay. Fair enough. And last question for me, I'll jump on the line here, touching on gross margins. On a pro forma basis, you had a nice number here in the first quarter. Wondering how we think about trajectory throughout this year; it seems like your mix might have been more closer to normal. I'm not sure if you're expecting any changing mix; it sounds like you're making some progress on the manufacturing side. So should we expect improvement in gross margins throughout the rest of the year, or how would you have us think about that?

Mark Weinswig, CFO

Yes. One of the biggest factors for the improvement that we saw on the non-GAAP, obviously, gross margin side was the higher ASPs. We're very excited about what the impact from the REV7 is going to be. And as you mentioned, Richard, and I appreciate you bringing it up, is the move to contract manufacturers to a lower-cost region for the manufacturing of the historical Velodyne products is something that will lead to additional expansion in our gross margins over time. We had talked a little bit about on our last call that the first couple of quarters, Q1 and Q2, would have a little bit of integration-related activities, but we're making great progress of getting through those, and we look forward to having some additional progress in showing that progress in the third and fourth quarter.

Richard Shannon, Analyst

Okay, fair enough. That’s all for me, guys. Thank you.

Operator, Operator

Our next question comes from the line of Itay Michaeli from Citi. Please go ahead.

Itay Michaeli, Analyst

Great. Thank you. Hi everybody. A couple of questions. Just first, Angus, hoping you could talk more about the Motional win announced, kind of what led to that win specifically and whether do you think this might open up new opportunities for you across other robotaxi players?

Angus Pacala, CEO

Thank you for the question. Motional is an excellent and highly advanced partner for which we are now starting to provide the VLS-128. Achieving exclusivity as the supplier for their production robotaxi platform is a significant milestone. This success hinges on two key elements: the product itself and the company marketing it. I’m pleased to share that Ouster represents a mature and trusted partner for a company like Motional. We are a critical supplier to hundreds of businesses looking for superior technology, and Ouster stands out as a valuable partner, which contributed to our success. Ultimately, the capabilities of the VLS-128 speak for themselves; it’s a remarkable product that historically needed a fresh manufacturing strategy. Internally, we are ensuring we can produce these units with a healthy profit margin, which we are achieving. This also allows us to increase our reach and sell to more partners. In response to the last part of your question, I believe this expands our ability to offer this technology, and we are committed to investing in the VLS-128 to reach as many interested parties as possible.

Itay Michaeli, Analyst

That's very helpful. And just a second question. Maybe just go back and talk about just the broader competitive landscape today. Obviously, a lot of competition, all of the macro environment is tough, and you've seen some consolidation. Is the competitive environment broadly today the same? Is it worse? Is it easier than maybe what it was a few or several months ago?

Angus Pacala, CEO

I think the competitive environment gets easier and easier as time goes on. There's a natural windowing in the field that has to happen. There's too many lidar companies, and Ouster has continued to distinguish itself as one that can ship product, that can retain customers, and that can generate positive gross margins. And with the exception of near-term merger activity. But so yes, I see the field thinning over time and the competitive landscape getting much clearer for us and also for investors and analysts.

Andres Sheppard, Analyst

Good afternoon everyone and congratulations on a strong quarter. I wanted to follow up on the topic of gross margins. How should we consider those for the rest of this year regarding seasonality, especially in the second half, as I believe that will account for the majority of our revenues? Any additional insights you could share would be appreciated. Thank you.

Angus Pacala, CEO

Looking at our GAAP gross margins for the quarter, they were influenced by several factors mentioned in our press release. On a non-GAAP basis, we achieved about 25%. Historically, Ouster's margins have ranged from 25% to 35% in different quarters. Our aim is to keep improving these margins. We've discussed actions like consolidating our operations team and shifting production to a more cost-effective area. The launch of the REV7 has been particularly significant, as it has increased our average selling prices and helped us maintain a solid margin on our products. As we continue to sell our next-generation sensor, we anticipate that our gross margins will keep improving over time. While there may be fluctuations, especially during the merger integration, we are very confident in our long-term growth. Ouster remains one of the few companies in the industry that can consistently offer products with positive gross margins.

Andres Sheppard, Analyst

Got it. That's super helpful. And a lot of our questions have been asked already. But maybe just to clarify one last point. In terms of the cash balance with the $257 million, my understanding is that, is sufficient to fund the business, I believe, to at least the next couple of years, in which if that's the case, and again, that will be a strong precision relative to the industry. So can you mind just kind of confirming that, or what is kind of the expected runway with the current cash balance? Thank you.

Angus Pacala, CEO

We are in a strong cash position, holding $257 million as of the end of March. We've implemented significant measures to move toward profitability, including achieving $80 million to $85 million in synergies, shifting some manufacturing of specific Velodyne products to Thailand, and closing certain facilities. However, we recognize that additional actions are necessary to maintain this progress. Lidar is a rapidly growing sector, and we are committed to seizing this multibillion-dollar opportunity. While we do not require capital at this moment, we may need it in the future, and we want to keep that option open due to the potential we see. We plan to invest in new products and capital equipment, as well as inventory. While this could lead us to require more cash, we believe that our current capital of $250 million is sufficient for now.

Andres Sheppard, Analyst

Understood. Very good. Thank you so much. I'll pass it on.

Operator, Operator

And this does conclude our question-and-answer session. I'd like to turn the conference back over to Angus Pacala, for closing remarks.

Angus Pacala, CEO

Thanks. And I want to thank everyone for spending the time to get on the call and asking questions. And with that, I'll sign off. Thank you all.

Operator, Operator

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.